Grow Your Money: Rainy days are here again – is your wallet ready?

The rainy days are here, and it is a good time to check if you’re ready for the inconveniences that the season brings. It’s also a reminder to examine if you’re ready for life’s proverbial rainy days.

Uncertainty is a fact of life. We never really know when you or a loved one will get sick, get involved in an accident, or die. There’s no way we can know these things in advance, but we can at least prepare financially. By being financially ready, we can lessen the emotional and mental difficulties that always come with emergencies.

While the importance of having an emergency fund is understood by most Filipinos, the truth is that only a few have built one up. Look at the sobering data. According to the Bangko Sentral ng Pilipinas’ report on financial inclusion, only 4 out of 10 Filipinos saved money in 2015, which means that the vast majority do not have savings. This is already an improvement from 2009, where only 2 out of 10 saved money. The same report showed that among Filipino adults, 24.5 percent never saved money.

As a result, only 31.3 percent maintained an account at a formal financial institution such as a bank, with the majority citing the lack of money as the main reason why they do not have a bank account. It is not at all surprising why during emergencies, so many of us end up borrowing money from loan sharks or begging for help from relatives, friends, and even strangers.

According to financial experts, we need anywhere from 3 to 9 months of our monthly income in our emergency funds. This, of course, depends a lot on individual circumstances. If you have many children, then you would need a larger emergency fund while a single person could probably have a smaller emergency fund. In any case, the larger the emergency fund, the better it would be.

If you’re among those who do not have an emergency fund, don’t despair. In 5 simple steps, you can set up a fund that will help you get through life’s uncertainties.

1.Pay your emergency fund – starting now! Whether it’s P250 or P1,000, what’s important is that you define an amount that will go into your emergency fund each time you receive your salary. You can also calculate how much should go into your emergency funds based on your assessment of your needs. It’s never too late, nor too early, so don’t use excuses to put this off.

2. Don’t pool your fund with other pots of money. An emergency fund should be separate from your fund for day-to-day expenses, as well as your fund for long-term savings. Don’t make the mistake of saving up for an emergency fund, and then when it reaches a certain amount, consider using it for a family vacation. While your emergency fund, if unused, could eventually form part of your long-term savings, you should make a distinction between the two.

3. Emergency funds should be readily accessible. If disaster strikes at night, you should be able to access your funds, or at least not have to wait very long to get hold of your money. This is why your emergency funds should be separate from your long-term savings account, which could not be easily withdrawn and may sometimes entail penalties.

4. Consider an auto-debit arrangement. Use technology to conveniently set up your emergency fund. Open a separate account and use the auto-debit arrangement facility offered by nearly all banks so that money is deposited into your emergency fund. The best thing about this is you can electronically monitor your emergency fund with every transfer and watch it grow.

5. Define emergencies. To ensure that you do not misappropriate your emergency fund, define what an emergency is. If you’re married, include your spouse in the discussion, as he or she, if earning, will likely also help build the fund up. Remind yourself that a bargain that is too good to pass up does not constitute an emergency. You’ll never know when you’ll be needing this fund, so best to limit it to serious situations such as during times of illness, death, loss of a job, disaster, and the like.

A successful savings plan always requires commitment. When you’re short on money, or when there are a thousand and one things that you need to prioritize, it’s tempting to skip putting funds into your emergency account. Hard as it may be, don’t make any excuses. Having an emergency fund is well worth the sacrifices and inconveniences that you may have to make.

Now that you know the importance of having an emergency fund, this is the perfect time to start. Go over your monthly budget and commit to setting aside an amount at the end of the month. Now is the time to start.

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Grow Your Money is an editorial partnership between News.abs-cbn.com and Citi Philippines to promote financial education and provide helpful information to Filipinos on how to better manage their personal finances.